The Department of Justice (“DOJ”) announced that Guild Mortgage Company (“Guild”) has agreed to pay $24.9 million to resolve allegations that it violated the False Claims Act (“FCA”) by knowingly breaching material program requirements when it originated and underwrote mortgages insured by the U.S. Department of Housing and Urban Development’s (“HUD”) Federal Housing Administration (“FHA”).

Like all participants in the FHA mortgage insurance program, Guild was authorized to originate and underwrite mortgages without first having the government review the loans for compliance with the agency’s requirements.  However, lenders like Guild were required to follow FHA rules to ensure that only mortgages that meet critical credit and underwriting criteria were insured by the government.  Here, DOJ alleges that Guild knowingly approved materially ineligible loans that later defaulted and resulted in claims to FHA for mortgage insurance, failed to comply with other material program rules requiring lenders to maintain certain quality control programs, and failed to self-report materially deficient loans that it had identified.

The investigation arose after a whistleblower, who was Guild’s former head of quality control, filed a qui tam action under the False Claims Act.  As a result of the settlement, the whistleblower will receive $4.9 million.

Read the DOJ press release here.